Egypt energy

Chinese firms set to win contract for coal-fired power plant

On May 20th the prime minister, Sherif Ismail, witnessed the opening of bids for the construction of a 6,000‑MW coal-fired power station at El Hamrawin, on the Red Sea.

Analysis

The lowest price of US$4.4bn was submitted by a consortium of Shanghai Electric Power Company and Dongfang Electric, both of China, with the local Hassan Allam Holding. The consortium also quoted an alternative price of US$4.58bn for a bid including more measures to mitigate the environmental impact of the project.

The government has been considering adding coal to its electricity-generating mix since the late 2000s when natural gas production started to decline at a time of rapidly increasing power demand. As yet no final contracts have been signed for major coal-fired plants, although a number of Memorandums of Understanding (MoU) have been signed with prospective developers, and negotiations are continuing with the UAE-based Al Nowais Group about a contract to build and operate a 2,640‑MW coal-fired plant in Ayoun Moussa, in Sinai.

Egypt's natural gas production has recovered strongly in the past two years, but the government is looking at various options to avoid becoming over-dependent on gas for power generation. One option is renewable energy, which is attracting significant investment, and agreements have been signed with Russia's Rosatom to build a 4,800‑MW nuclear power plant at El Dabaa. However, coal has clear cost advantages. Many of the renewables projects have been based on relatively high feed‑in tariff agreements, and El Dabaa's cost is estimated at US$30bn. There are still some final (logistical and technical) issues to resolve before substantive work on El Dabaa will proceed.

The other bidders for El Hamrawin were a partnership of General Electric of the US and Harbin Electric of China, quoting a basic price of US$5.2bn and an alternative of US$5.3bn, and a Japanese-Egyptian consortium of Mitsubishi, Toyota, Orascom Construction an Elsewedy Electric, quoting US$6.19bn and US$6.61bn, respectively, for the two options. In any case, the contract will be financed on an Energy Performance Contracting-plus basis, which requires the winning consortium to raise loans and export credits, and the plant is scheduled to be complete by 2025.

Impact on the forecast

The recent developments are in line with our view that the government will increasingly promote the use of coal as a substitute for natural gas. Our policy trends forecast is unchanged.